Friday, September 28, 2007

Banc of America (BAC) downgraded Starbucks (SBUX) to Sell from Neutral, and lowered their target to $23 from $27, as they see downside risk to estimates due to slower growth. The firm is concerned that expectations for a near-term recovery are too high.

The analyst, Mr. Barrish wrote, "Although we believe that the company controls a very strong brand and can continue to grow, we believe the pace of growth will be slower [with international business still too small to make significant contribution to operating profits, and could be several years away from such a contribution], and that expectations are too high for a short-term recovery."

He added, "We also believe that store operations have 'slipped' and longer lines, more complexity and less-than-stellar-looking assets could be causing a modest decrease in sales in this challenging consumer environment."

I guess the first question isn't "is he right" but "where have you been"? I mean, none of this stuff is an enlightened opinion and those of you who read ValuePlays have been seeing the same sentiment since Fenruary when shares were sitting at $35 each. Shares were down some 2% yesterday and there isn't really anything to stop the fall on the horizon. If anything, the upcoming earnings release may do more harm than good as it is looking more apparent everyday that meeting their number is becoming less and less likely. What took the analyst almost 10 months to see what the rest of us already new? Also, the fact that shares dropped so much despite all this shows how much "hope" is still baked into the current price.

Starbucks may give us a valueplay soon enough. But shares will fall further first..

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